Euro holds range vs Yen as French strains, Japan’s loose policy offset

• EUR/JPY trades around 177.35 on Monday, posting a modest daily gain of 0.04%.
• Concerns over France's mounting debt and political instability weigh on the European currency.
• The Japanese Yen remains under pressure from Japan's expansionary fiscal policies.

EUR/JPY trades without a clear direction on Monday, hovering around 177.35 at the time of writing, posting a modest daily gain of 0.04%. The pair remains relatively stable as the Euro (EUR) faces pressure from political and fiscal uncertainty in France, while the Japanese Yen (JPY) struggles to regain strength amid concerns over Japan's public finances.

On the European side, the shared currency remains weighed down by growing concerns over France's public debt and the risk of contagion to other heavily indebted Eurozone economies. Political deadlock ahead of the 2027 presidential election, combined with rising social unrest, is undermining investor confidence and limiting the Euro's appeal.

France's fiscal difficulties are fueling concerns about the country's ability to stabilize its public finances amid ongoing political fragmentation. This situation could increase investor caution toward European assets and continue to weigh on the shared currency.

On the geopolitical front, markets are also monitoring developments surrounding the war between Russia and Ukraine. Ukrainian President Volodymyr Zelenskyy said on Monday that his country was ready to sign ceasefire guarantees, while calling on the United States (US) to ensure that Moscow complies with the agreement covering energy infrastructure.

The statement follows an announcement by US President Donald Trump that Russia and Ukraine have agreed to suspend attacks on energy facilities. A potential de-escalation of the conflict could help improve sentiment among European investors, although the effective implementation of the agreement remains uncertain.

In Japan, the Japanese Yen continues to struggle amid concerns over Prime Minister Sanae Takaichi's expansionary fiscal policies, against a backdrop of already elevated public debt. The prospect of increased government spending is fueling worries about Japan's fiscal outlook, limiting the Japanese currency's ability to strengthen.

However, expectations of further interest rate hikes by the Bank of Japan (BoJ) could provide some support for the Japanese currency. BoJ Governor Kazuo Ueda recently emphasized that monetary policy is shifting toward a more preemptive approach to inflation risks, rather than focusing solely on achieving the 2% inflation target.

Furthermore, Japanese real wages have increased for the eighth consecutive month, strengthening the case for continued monetary policy normalization. Sustained wage growth could support domestic consumption and allow the BoJ to consider additional interest rate hikes, helping to limit the Japanese Yen's losses.

Investors also remain attentive to the risk of intervention by Japanese authorities in the foreign exchange market in the event of excessive currency depreciation. This possibility could curb selling pressure on the Japanese Yen and limit the upside potential of EUR/JPY.